F2
aren't the two below questions contradict ? one time it includes cost incured to calculte the GP. in the second quesion it does,'t ?
i think the first question it was asked year 2 . and the cost incured is cummulative. but in 2nd question only year one was asked. is that logic correct ?
Haft Construction Co. has consistently used the percentage-of-completion method. On January 10, Year 1, Haft
began work on a $3,000,000 construction contract. At the inception date, the estimated cost of construction was
$2,250,000. The following data relate to the progress of the contract:
Income recognized at 12/31/Year 1 $ 300,000
Costs incurred 1/10/ Year 1 through 12/31/Year 2 1,800,000
Estimated cost to complete at 12/31/Year 2 600,000
In its income statement for the year ended December 31 , Year 2, what amount of gross profit should Haft report?
a. $300,000
b. $262,500
C. $450,000
d. $150,000
Explanation
Choice “d” is correct. The gross profit for the percentage-of-completion method is as follows:
Contract price $3,000,000
Cost to date 1,800,000
Estimated cost to complete 600,000
Total cost $2,400,000
Expected gross profit 600,000
Percentage complete (18/24) 75%
Profit to date 450,000
Profit pre~ously recognized (300,000)
Year 2 profit $ 150,000
ARB 45 para. 4
Choice “c” is incorrect. $450,000 is the total profit eamed to date. Only profit eamed in Year 2 is to be
determined.
Choice “a” is incorrect. $300,000 is the eamed profit in Year 1. The profit eamed in Year 2 is to be determined.
Choice “b” is incorrect. The total gross profit as of December 31, Year 2 must be computed to determine the profit
to be recorded in Year 2.
q2
Mill Construction Co. uses the percentage-of- completion method of accounting. During Year 1, Mill contracted to
build an apartment complex for Drew for $20,000,000. Mill estimated that total costs ‘WOuld amount to
$16,000,000 o\er the period of construction. In connection Vvith this contract, Mill incurred $2,000,000 of
construction costs during Year 1. Mill billed and collected $3,000,000 from Drew in Year 1. What amount should
Mill recognize as gross profit for Year 1?
a. $500,000
b. $250,000
C. $375,000
d. $600,000
Explanation
Choice “a” is correct. $500,000 gross profit recognized for Year 1 under the percentage-of-completion method.
Percentage-of-completion method:
Total contract sales price
Less total estimated cost of contract
Total gross profit
-=-C.::…o.::.. s;:-:t:.i:. :n:.:.c::..u:::.:r…:…e.:r:…d.:=-t7-o=–d=-a=.t.::e..:=—–:- _ 2,0 0 0,0 0 0 =
T ota I est. cost of co ntract 1 6 ,0 0 0,0 00
Gross profit recognized for Year 1
$ 20,000,000
16,000,000
4,000,000
1/8
$ 500,000
FAR 06/09/2016 | 2014 (42) Didn't Study for it | 2015 (54)
Audit (66) i was expecting (99)
will Ninja MCQs make the difference in 09 June, Lets wait!
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